SB 99-AIDEA: DEVELOPMENT LOANS  2:17:30 PM CHAIR DUNLEAVY announced the consideration of SB 99."An Act correcting a reference to the Alaska Industrial Development and Export Authority revolving fund; limiting the use of the Alaska Industrial Development and Export Authority sustainable energy transmission and supply development fund for certain loans and loan guarantees and allowing the development fund to be used as security for a bond guarantee; and amending the definition of 'qualified energy development.'" He noted that this was the second hearing and there was a new committee substitute (CS). 2:17:51 PM SENATOR STEDMAN moved to adopt CS for SB 99, labeled 28- LS0741\C, as the working document and then objected for an explanation. 2:18:07 PM JESSE LOGAN, Staff, Senator Lesil McGuire, Alaska State Legislature, Juneau, Alaska, sponsor of SB 99, summarized that SB 99 corrects a few ambiguities in the SETS fund that was created in 2012. The CS makes two changes to the original bill. Language on page 2, lines 4-5, directs that the transfer of funds between other funds within AIDEA is done by a vote of the members. This constitutes an action of the board within AIDEA. The second change found on page 3, lines 14-25, authorizes AIDEA to issue bonds for up to $145 million for the infrastructure and construction costs of the Bokan-Dotson Ridge Rare Earth Element Project. SENATOR STEDMAN removed his objection. VICE CHAIR MICCICHE found no further objection and announced that Version C was adopted. He asked if there were any amendments. 2:19:13 PM SENATOR STEDMAN moved to adopt Amendment 1, labeled 28- LS0741\C.1. AMENDMENT 1 OFFERED IN THE SENATE TO: CSSB 99 ( ), Draft Version "C" Page 1, line 8, following "project": Insert "and the Niblack project" Page 3, following line 21: Insert a new bill section to read:  "* Sec. 6. The uncodified law of the State of Alaska is amended by adding a new section to read: LEGISLATIVE APPROVAL; NIBLACK PROJECT. (a) The Alaska Industrial Development and Export Authority may issue bonds to finance the infrastructure and construction costs of the Niblack project. The Niblack project includes a mineral processing mill, associated dock, and loading and related infrastructure facilities at the Gravina Island Industrial Complex, as well as infrastructure at the project site on Prince of Wales Island. The mineral processing mill, associated dock, and loading and related infrastructure facilities at the Gravina Island Industrial Complex, as well as infrastructure at the project site on Prince of Wales Island, shall be owned and operated by the authority or financed under AS 44.88.172. The principal amount of the bonds provided by the authority for the Niblack project may not exceed $125,000,000 and may include the costs of issuing bonds considered reasonable and appropriate by the Alaska Industrial Development and Export Authority. (b) This section constitutes legislative approval required by AS 44.88.095(g)." VICE CHAIR MICCICHE objected for discussion purposes. SENATOR STEDMAN read Amendment 1. 2:20:44 PM SENATOR OLSON asked if the amendment affects the amount of money that AIDEA would encumber for the project. SENATOR STEDMAN replied he wasn't aware that it would but would defer further comment to AIDEA. SENATOR OLSON asked if AIDEA was in favor of the amendment. SENATOR STEDMAN suggested he pose the question to AIDEA but his understanding was that they did favor it. 2:21:57 PM TED LEONARD, Executive Director, Alaska Industrial Development and Export Authority (AIDEA), Anchorage, Alaska, said AIDEA believes that it has the capacity to fund both Bokan Mountain and Niblack. Funding is based on the revenues of the projects so this would not affect AIDEA's capacity to fund other projects. 2:23:11 PM SENATOR OLSON asked for assurance that the amendment would not affect the amount that would be encumbered by AIDEA for these two projects. MR. LEONARD said he didn't believe it would. SENATOR OLSON asked if AIDEA was in favor of the amendment. MR. LEONARD answered yes and added that it could have a positive economic impact for the areas of Ketchikan and Prince of Wales. 2:24:33 PM PATRICK SMITH President, Heatherdale Resources Ltd., owner of the Niblack Project on Prince of Wales, offered to answer questions. VICE-CHAIR MICCICHE removed his objection and opened public testimony. Version C was before the committee. 2:25:55 PM JAMES SULLIVAN, Southeast Alaska Conservation Council (SEACC), Juneau, Alaska, said his prepared comments were to the CS that included Bokan Mountain but he'd try to incorporate the amendment to include the Niblack Project since it was closely related. He stated the following: Bokan Mountain venture is near an abandon uranium mine and has been conducting exploration activities since 2006. It was April 30, 2013 that the Bloomberg Business Week noted that in the most recent audit report filed by Ucor, the auditor gave an unqualified opinion expressing doubt that the company can continue as a going concern. Their most recent, the 2013 annual, has not been released or was not as of last week when I checked. But it's our belief that they will get a very similar report from their auditor. Ucore has not put out a final economic assessment report showing that the project is even economically viable. Work to date has documented an inferred resource of rare earth mineralization at the Bokan Mountain property. This legislation proposes owning a mine - or financing - that is not finished in its speculation process. Investors have not joined Ucore so why is the state of Alaska? The question begs - Is the state propping up a company that can't make it in the real market? As for the comments that I didn't have prepared for the Niblack, but I want to put on the record that it was just this past summer that Niblack announced publicly that they were pulling back and putting everything on hold. This is due to, I believe, the fact that they're not able to find investors to help them bring this mine to viability. I think it is very concerning that we're proposing buying into a mine that isn't finished with its speculation process, that hasn't gone through the permitting process. There is an inherent conflict of interest. And yes I understand the capabilities of AIDEA and I don't want my comments in any way to disparage AIDEA, which I believe has put up a great track record over the last couple of decades. But this is a departure in our feeling on what AIDEA has done in the past with mostly infrastructure dealings and support through revenue bonds to help mines and other industrial activities within the state of Alaska. This is highly speculative and we believe that before you put the state of Alaska and before we start using public money, we should get a better understanding of where they are in the speculation process and if they are actually viable. There is no reason to think that if we wait that we're doing damage in any way. 2:29:34 PM SENATOR OLSON said it was his understanding that the rare earth elements (REE) from Bokan Mountain would be competing against those coming out of China. He questioned whether it wasn't better for the environment to rely on U.S. mining practices rather than the relatively unregulated practices in China. MR. SULLIVAN said SEACC was concerned with China's mining practices and was aware of the potential for a successful mine on Prince of Wales. The point is that the state should wait until the project proves that it is economically viable before it steps in to offer help. The project isn't at that point and it's incumbent on the legislature not to get into the speculation fever. 2:32:12 PM SENATOR OLSON asked if it's true that the project has no permits. MR. SULLIVAN replied they have permits for the exploration process, but none to create a mine. 2:32:41 PM VICE-CHAIR MICCICHE asked Mr. Leonard to describe AIDEA's process to assure the committee that it doesn't hand out money to companies that can't prove fitness. MR. LEONARD explained that SB 99 was a bond application to allow AIDEA to move forward if the due diligence process proves that the mine is feasible. The due diligence process verifies that the mine is feasible, that it has all the required permits, and that investors are willing to invest. AIDEA can't go to the bond market until all the questions are answered and a regional advisory has looked at the social, economic, and environmental impact of the mine. By statute, AIDEA can't move forward until it can show a financing plan that will pay for the bonds that are issued as well as any costs. 2:35:31 PM KEN COLLISON, Chief Operating Officer, Ucore Rare Metals Inc., stated that Ucore will be doing a feasibility study this year for assurance that the project is economic and something that investors would support. Ucor came to the legislature this year because it may have to make down payments on some of the large equipment that has 18-24 month lead times on delivery. Waiting until next year could potentially delay the project. SENATOR STEDMAN stressed that allowing these projects to go through AIDEA for some underwritten and preferential treatment in the bond market increases the probability of one or both of them going forward. Reasons to support these projects are that the environmental concerns are much less than anything that's done in China, access to REEs in the U.S. addresses a national defense concern, and the projects create much needed jobs. He suggested that this was an effort to replicate the successful model that AIDEA used for the Red Dog mine in Senator Olson's district. It's good public policy to support both projects if AIDEA's due diligence process proves them feasible, he said. 2:39:02 PM SENATOR OLSON expressed reservation with committing resources for projects that might not go forward. SENATOR STEDMAN suggested that Mr. Leonard clarify the timeline of the due diligence process. VICE-CHAIR MICCICHE asked Mr. Leonard to discuss how AIDEA might participate early and more heavily later if a mine like these was found to be economic. 2:40:23 PM MR. LEONARD restated that for full financing AIDEA would need to have all the final details of construction, permitting, and economic assessments completed before starting the due diligence. In this process AIDEA would verify that stockholders were interested in investing in a portion of the mine and determine how much AIDA was willing to finance. He noted that in the past that's been limited to hard assets like the mill and the road. He reiterated that AIDEA would not be able to issue any of the $145 million in bonds until all the questions were answered and the social, economic, and environmental impact studies were finished and the full mine was able to move forward through operations. He advised that AIDEA does have the ability to finance pre- development with much smaller loans if they believe that a project should move forward and they want to support the feasibility analysis of the project. This would be done through AIDEA's development finance program, not issuance of bonds. He assured the committee that AIDEA would not invest bond proceeds into a project that was piecemealed together. SENATOR OLSON expressed satisfaction with the explanation. 2:44:55 PM SENATOR STEDMAN moved to report CS for SB 99, Version C as amended, from committee with individual recommendations and attached fiscal note(s). VICE-CHAIR MICCICHE announced that without objection, CSSB 99(L&C) moved from the Senate Labor & Commerce Committee.